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Last updated: Oct. 19, 2016
Farmers are the economic backbone of Canada; they feed the country and the Canadian economy.
In fact, Canada’s more than 650,000 farmers account for one out of every 50 Canadians, or 2.0% of the population.
Each year, Canadian farmers contribute over $100.0 billion to the country’s gross domestic product (GDP). To put that into perspective, that’s more than the national GDP of 66% of the world’s economies.
To help maximize long-term profitability, sustainability, and to stay competitive, the Canadian government provides Canadian farmers with a vast number of tax deductions and loopholes that they can use to help keep their annual taxes lower.
5 Strategic Tax Deductions for Canadian Farmers
To help maximize your farm tax deductibles, it’s important to take a fresh look at Canada’s federal tax laws and look at your options from as many different angles as possible.
Category of Farmers
Farmers fall in one of 3 categories:
- Full Time
- Part Time
- Hobby Farmer
Full-time farmers are not limited on the amount of losses they can deduct whereas part-time farmers are.
The maximum a part-time farmer can claim in any one year is $17,500. If you’re a part-time farmer, you should try and establish your farm as a full-time operation.
You can avoid the hobby farm classification if you have documentation that shows you have a reasonable expectation for profit; this will bump you into the part-time category, and increase your farm tax deduction.
Claiming Expenses
Because farming is a specialized business, they can claim any expenses related to the farming operation, this includes, but is not limited to:
- Livestock purchases
- Twine, fertilizer and pesticide
- Seeds and feed
- Equipment
- Crop insurance
- Property
- Machinery and machinery rentals
- Veterinary and breeding fees
- Fence repairs
- Fuel
- Small tools
End-of-Year Purchasing
To help lower the amount of taxes you owe at the end of the year, those who use cash accounting should consider purchasing supplies at the end of year.
This helps increase expenses if you generated a farming profit that year. Credit card payments also qualify as paid. In some cases, a note payable to a supplier can qualify as paid.
Tax-Free Limit
For 2016, the personal exemption under which no income tax is paid on earnings is $11,474. Help family members take advantage of this tax-free limit.
Farm Tax Deduction Qualification
If you’re thinking of selling your farm or transferring it to your children, remember that the Lifetime Capital Gains Exemption Limit was increased to $1.0 million in 2015 for qualified farm/fishing property and shares of a family farming/fishing corporation.3
Have your business structured in such a way that you and your family qualify for this farm tax deduction.
FBC—Canada’s Farm & Small Business Tax Specialist
FBC has been providing its agricultural and small-business customers with accounting, income tax preparation, and advisory services across Canada for over 60 years. As Canada’s farm and small-business tax specialists, FBC provides comprehensive tax accounting and bookkeeping services to tens of thousands of customers across the country.
From Nova Scotia to British Columbia, the experienced tax consultants at FBC provide complete financial planning that addresses your specific business needs, whether it’s big or small, a startup or celebrating its 100th anniversary.
For more information on how FBC tax specialists can help your agricultural or small business with its accounting, income tax preparation, financial planning, and advisory services, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.
Connect with your Local Tax Consultant to learn more.
